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Keeping the door open

On December 16, 1978 China signed a joint communiqué with the United States on establishing diplomatic relations. Just two days later the Communist Party held an all-important Third Plenum of its 11th National Party Congress to adopt economic reforms under the ‘open door’ policy.

China celebrates the 40th anniversary of that meeting this year, at a time when relations between Beijing and Washington are souring due to talk of a trade war.

The need to tone down the immediate tension explains why the word ‘open’ often cropped up in the keynote speech of Chinese president Xi Jinping at the Boao Forum this week in Hainan.

“The door to China will not close, it will only open wider and wider,” he told business and world leaders at the opening ceremony of the annual meeting.

It was Xi’s first major speech since the world’s two biggest economies started threatening each other with tariffs on more than $150 billion worth of goods.

So what has China to offer? Xi pledged to improve the prospects for foreign investors in China and to strengthen protection of intellectual property rights, an issue that prompted an American investigation and subsequently triggered the tariff threat.

At the forefront of Xi’s promises is a widening of market access, including a lowering of caps on foreign ownership in Chinese banks, insurers and securities firms.

On manufacturing, Xi singled out the automobile industry, suggesting that caps of foreign shareholdings in joint venture at 49% would be relaxed this year.

Xi also promised to lower the import tariffs on imported vehicles (mostly at 25% currently).

Foreign media described the speech as an effort to stave off some of the risks of an escalating trade war. “It was a conciliatory gesture, though far from surrender,” TIME magazine suggested, while the Nikkei Asian Review saw the “open market” message as an “olive branch” to Washington.

China’s state media outlets took a different line. Indeed, the People’s Daily reported most deliberately that the speech shouldn’t “be mistaken as concessions aimed at defusing a looming trade war”.

The state-run newspaper further insisted that Xi’s intended audience was “the wider world” rather than the US or Donald Trump, to whom Xi made no direct reference during his remarks.

There were indirect mentions of the American president, however. “In today’s world, the trend of peace and cooperation is moving forward and a Cold War mentality and zero-sum game thinking are outdated,” Xi said. “Paying attention only to one’s own community without thinking of others can only lead into a wall.”

China’s critics say that they have heard all these promises before and the reason that the Trump administration is moving towards tariffs is because it doesn’t believe that Beijing will deliver on the rhetoric.

However, on Wednesday, the central bank’s new governor Yi Gang gave more details on how regulators would be opening up the financial sector. Yi announced that the cap on foreign ownership in banks would be lifted in the first half of this year, while the ceiling on shareholdings in securities firms would be raised to 51% (and scrapped in three years time).

A long-awaited pilot programme to allow investors in London and Shanghai to invest in each other’s stock exchanges is likely to be rolled out this year (and quotas for existing ‘connect’ schemes linking Shenzhen and Shanghai to Hong Kong will be quadrupled).

Yi also rebuffed suggestions that China would devalue its currency as “a weapon of mass destruction” in a trade conflict and he called for investors to judge the dispute from a different perspective.

“American MNCs operating in China have been rewarded with massive profits,” Yi said. “The situation will look much better if this is taken into consideration.”

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